Answer: Borrowing in two months to finance a three-month investment.

## Explanation A Forward Rate Agreement (FRA) 2 × 5 represents a forward contract that starts in 2 months and ends in 5 months, with a total duration of 3 months (5 - 2 = 3). **Understanding FRA Notation:** - FRA m × n means the contract starts in m months and ends in n months - The underlying loan period is (n - m) months **Long Position in FRA:** - A long position in an FRA means you are locking in a borrowing rate - You are effectively agreeing to borrow money at a fixed rate starting in the future **Equivalent Spot Market Position:** - A long FRA 2 × 5 means you want to borrow money starting in 2 months for a 3-month period - This is equivalent to: Borrowing in two months to finance a three-month investment **Why other options are incorrect:** - **Option A**: Incorrect - This would be borrowing for 5 months, not 3 months - **Option B**: Incorrect - This reverses the timing and duration - **Option C**: Incorrect - This describes a different strategy involving partial borrowing at different times Therefore, the correct answer is **D**: Borrowing in two months to finance a three-month investment.

Author: LeetQuiz .